The Nation's Nightmare Isn't Over Just Because The Debt Limit Crisis Has Been Averted

A nightmarish half year of bitter squabbling and talks over raising the $14.3 trillion debt ceiling came to a close Tuesday afternoon, as the Senate followed the House’s lead and voted to approve a bipartisan plan to extend the Treasury’s borrowing authority through early 2013 while committing the government to reducing the deficit by more than $2.1 trillion over the coming decade. Staring at a midnight deadline for averting the threat of the first default on U.S. debt and obligations in history, the Senate voted 74 to 26, with 45 Democrats joining 28 Republicans and one independent to pass the legislation, which was signed into law by President Obama shortly following the vote. The measure immediately grants the Treasury $400 billion of additional borrowing authority and provides other incremental increases through the coming year.

“This compromise guarantees more than $2 trillion in deficit reduction and it’s an important first step in insuring that as a nation we live within our means,” Obama said at the White House following the Senate action. “It also allows us to keep making key investments in things like education and research that leads to new jobs, and insures that we’re not cutting too abruptly while the economy is still fragile.”

“You can’t the close the deficit with just spending cuts,” he added. “We’ll need a balanced approach, with everything on the table. Yes, that means making some adjustments to protect health care programs like Medicare so that they’re there for future generations. It also means reforming our tax code, so that the wealthiest Americans and biggest corporations pay their fair share.”

The bruising battle between Obama and the Democrats on one side and congressional Republicans and their Tea Party allies on the other in the end produced far less in long term debt reduction than appeared possible at one time. None of the reforms to the tax code and entitlement programs including Social Security and Medicare that most budget experts say will be essential to bending the government’s cost curve were included.

Only a couple of weeks ago, Obama and House Speaker John Boehner were close to a potentially historic “grand bargain” of nearly $4 trillion in long term savings, as much as $800 billion in fresh tax revenues and reforms of Social Security and Medicare to slow the rate of growth of those programs before they run out of money or eat too deeply into other programs. But that plan – similar to one recommended by a presidential fiscal commission last December – blew up in a barrage of partisan recriminations, and now Congress and the administration are left with a compromise that Boehner and Obama freely acknowledge is far from what they would have preferred.

“We’ve had to settle for less than we wanted, but what we’ve achieved is in no way insignificant,” said Senate GOP leader Mitch McConnell of Kentucky. “But I think it was the view of those in my party that we’d try to get as much spending cuts as we could from a government we didn’t control.

Yet even as Congress and the administration rushed to put the finishing touches on the compromise of spending cuts, extended borrowing authority for the government and no tax increases before a long summer break, lawmakers and experts were beginning to look to the fall, when even more contentious budget and tax battles are looming.

“I think our long national nightmare is just on hold and will start up in all its glory in the fall,” said Robert Bixby of the Concord Coalition, a budget advocacy group.

A new, super joint committee of Congress will be mandated to figuring out how to come up with as much as $1.5 trillion of the overall savings in the coming decade — here’s where the battle will be won or lost over true tax and entitlement reform. The 12-member House-Senate committee– evenly split between Democrats and Republicans – will conduct no-holds barred talks over ways for stabilizing the growth of the debt. Those potentially can include reductions in benefits for Social Security and Medicare beneficiaries, reforms to the federal tax code to eliminate wasteful deductions and loopholes, and even raising tax rates – although Republicans have made it clear from the start that tax hikes would not be an acceptable option.

House Majority Leader Eric Cantor, R-Va., and other Republicans have argued that tax increases would be “impossible” for the commission to find. “The big win in this measure is that despite the insistence of the President and his party, there are no tax hikes,” Cantor said on Monday. “With so many people out of work, with the middle class hoping for more jobs, the last thing we need right now are tax hikes.” But centrists and liberals agree that the rate of deficit growth cannot be stemmed without them. “No thinking person in America believes that we can really solve this problem long term without raising revenues,” said Sen. Mary Landrieu, a Democrat from Louisiana.

While the Republicans have prevailed so far in their opposition to any tax increases, Obama will have a new playing card for the 2012 election campaign from this week’s deal. If the economy begins to pick up next year and there is less pressure for more stimulus of any type, Obama’s ace in the hole will be expiration of the Bush-era tax cuts on Jan. 1, 2013. The president and Obama can argue on the campaign trail that markets needn’t worry about a deadlocked super committee not being able to deliver on a deal for achieving more savings, since expiration of the tax cuts would save the Treasury a whopping $4 trillion over the coming decade.

Obama insists that any long term solution to the deficit must be balanced, meaning a combination of cost controls on entitlements and higher taxes on the wealthiest Americans and corporations. But however the scenario plays out, the deliberations of the new joint committee will be gut wrenching and politically divisive. And the failure of the committee and Congress to agree on a package of reforms and savings would automatically trigger a tough budget enforcement mechanism that woud impose across the board cuts in spending – equally divided between military and domestic programs – as well as reductions in Medicare payments to providers.

The trigger has been likened to the “sword of Damocles” that would be hanging over the committee and the full Congress to provide the impetus for a final deal. “To hold us all accountable for making these reforms, tough cuts that both parties would find objectionable would automatically go into effect if we don’t act,” Obama explained Sunday evening in announcing the debt ceiling deal.

But as we have seen before, finding consensus on special commissions and committees is extremely hard at best. The Bowles-Simpson presidential commission miraculously forged a bipartisan majority around an ambitious plan of $4 trillion in long term savings, with a ratio of $3 of spending cuts for every $1 of tax increases. But Democrat Erskine Bowles and Republican Alan Simpson, the co-chairmen of the panel, couldn’t get the super majority of 60 per cent of members needed to get a final vote in Congress. The stumbling block was taxes, with House Republicans refusing to consider making tax hikes a part of the mix.

“Finding consensus in this environment is going to be very, very difficult,” said Sen. Lindsey Graham, who voted against the debt ceiling bill. “It seems to be that we are a nation that puts out fires and I’m afraid that’s the way we are governing, putting out fires. Some of these fires are going to be so big you can’t put them out. Every two year period we punt and we don’t embrace structural change, makes it a steeper climb. This just does sorta punt and every year you lose makes the job harder.”

And the Senate “Gang of Six” Democrats and Republicans floundered for months before finally putting together a similar plan that went nowhere in the final days of talks last week. While a few conservative Republicans, including Sens. Tom Colburn of Oklahoma, Saxby Chambliss of Georgia and Mike Crapo of Idaho, were willing to stick their necks out to back some tax increases, most Senate and House Republican leaders, Tea Party advocates and powerful anti-tax lobbyist Grover Norquist are unalterably opposed to tax increases.

If the Senate and House GOP leadership stacks the committee with lawmakers under orders to oppose tax increases at all costs, then another bitter stalemate is in the offing – this time around Christmas.

Sen. Mark Warner, D-Va., a member of the “Gang of Six,” is sceptical the new committee can get anything done. “If we don’t really take on the kind of elephants in the room – I mean entitlement reform which frightens some folks on my side of the aisle, and tax reform that can actually generate additional revenue for deficit reduction in a fair way on the Republican side – then I really worry whether this super committee is going to get something done,” Warner told MSNBC.

Bixby of the Concord Coalition agrees: “I’d like to say the special committee is another shot at the Grand Bargain, and that would be my highest hope for this process,” he said. “But both sides have pretty much sharpened their talking points on this, and they seem comfortable going into the 2012 election with their talking points – whether it’s ‘Republicans want to kill Medicare’ or ‘Democrats want to tax and spend us into oblivion.’ It’s going to be awfully hard for that committee, appointed as it will be by the leadership, to break through that dynamic.”

The joint committee would enjoy political standing and clout that previous commissions and special taskforces have lacked. The dozen members from the two chambers of Congress will be equally divided between Democrats and Republicans, and appointed by Majority and Minority leaders in each chamber. They will be tasked with developing legislation to achieve at least $1.5 trillion in future deficit reduction by Thanksgiving. The committee’s legislation—which can include entitlements and revenues – will be assured an up or down vote in the Senate by Dec. 23, just before Christmas – and with no amendments permitted. In that respect, it would be similar to the congressional base closing commissions, whose recommendations on eliminating military facilities were presented to Congress on a take it or leave it basis.

If the new committee’s recommendations achieve at least $1.5 trillion and are enacted by Congress, the debt ceiling will be raised by an additional $1.5 trillion. If the committee’s bill is enacted and produces between $1.2 trillion and $1.5 trillion, the debt limit will be raised dollar for dollar. If the committee fails to produce a bill, its bill is not enacted, or it produces less than $1.2 trillion, the debt limit will increase by $1.2 trillion.

Some members have scoffed at the idea of being on another congressional commission tasked with finding deficit savings. “I’ve thought about it, but I’m not sure,” said Crapo, who was also a member of the President’s fiscal commission last year.

But Obama says that while the debt ceiling agreement, including creation of the joint committee, is far from ideal, this compromise does make a serious down payment on the deficit reduction we need, and gives each party a strong incentive to get a balanced plan done before the end of the year. “

We’ll see.

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